What is Tax Deducted at Source (TDS)?

Every person is liable to pay Income Tax whose income exceeds the stipulated limit as prescribed by Income Tax Department as per the order of the Government of India from time to time.  Income tax is charged on the income earned in the previous year.  It is the duty of the tax payer to pay the tax on self-assessment basis, so it is the duty of the tax payer to assess the income and tax thereon. 

Since the income tax is calculated for the previous year, the tax payer pays the tax only in the Assessment year.  But the government wants the tax for its functions and it can’t wait till the year end.  So, the responsibility of paying tax is transferred to the tax deductor, who is paying income to the tax payer.  Deductor is to deduct the tax on behalf of tax payer and remit the tax to the department within the stipulated time period and that’s how it is called Tax Deducted at source.

For example, an employer gives salary to his employees only after deducting TDS from salary and remits the same to the department.  All theses deductions are categorized under different sections (see table as below – frequent catetories) and the limit for tax deductions is also mentioned. 

Section	Nature of Payment	Threshold Limit (During the F.Y.)	TDS Rate (Individual/HUF)	TDS Rates (Others)
194 A	Interest paid by banks Interest paid by others	10,000 5,000	10 10	10 10
194 C	Payment to Contractors – Single Transaction Payment to Contractors – During the F.Y.	30,000 75,000	1 1	2 2
194 H	Commission / Brokerage	5,000	10	10
194 I	Rent - Rent – Plant & Machinery	1,80,000 1,80,000	10 2	10 2
194 J	Payment to Professional (fees) Directors Fees	30,000 -	10 10	10 10
194 IA	Transfer of Immovable Property other than Agricultural land	50,00,000	1	1
192	Salary Income	Applicable Slab	Slab Rates	-

The above mentioned details are applicable only for the F.Y.2013-14.  The department change or let the rates remain from time to time.

After deducting tax, the deductor remit the same by filling up the Challan No.281 through the authorized banks mentioning his TAN, Code, Assessment year, Amount paid and deducted amount.

In order to deduct the TDS the deductor should obtain Tax Deduction Account Number (TAN) and he/she should mention this number every time he/she pays the TDS to the department.  Deductors are also required to file the TDS Returns every quarter furnishing the deduction details.